TaxTMI 
TaxTMI 
2014 (6) TMI 54
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent is entitled to recover substantial amounts from the petitioner. 2. Admittedly, the respondent has received the goods supplied by the petitioner. Thus, the only controversy that needs to be considered in the present case is whether the defense raised by the respondent that the said goods were defective, hazardous and substandard, is bona fide. 3. Briefly stated, the relevant facts are as follows:- 3.1 The petitioner company and the respondent company had entered into an agreement, titled "Letter of Agreement", dated 01.04.2007 whereby the petitioner company agreed to supply and sell the goods (Model Kits products, Paints Accessories, Airbrush, Metal and Slot Cars) to the respondent company on credit basis. Some of the relevant clauses of the said Agreement are extracted below:- "b. Distributor Relationship. xx xx xx xx xx xx The Supplier will sell to The Distributor and The Distributor will purchase from The Supplier the Products to be resold by The Distributor. xx xx xx xx xx xx The Distributor undertakes diligently to canvass for purchasers of the Products and in all reasonable and proper w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 080488 10.10.2007 67000.86 8. 081527 12.10.2007 60391.56 9. 083770 19.10.2007 48619.68 10. 083771 19.10.2007 70931.40 11. 850283 22.10.2007 4605.00 12. 850311 23.11.2007 484.34 13. 850312 23.11.2007 2220.54 14. 850317 29.11.2007 4085.30 15. 850318 29.11.2007 2352.04 16. 850319 29.11.2007 2446.41 17. 850320 29.11.2007 936.24 18. 029659 18.03.2008 21174.66 19. 032587 03.04.2008 19466.58 20. 038549 29.04.2008 4828.02 21. 850170 18.06.2008 2304.45 22. 850171 18.06.2008 2063.34 23. 850172 18.06.2008 805.76 24. 850173 18.06.2008 892.96 Total 537,226.52 Credit Note dated 11.08.2008 (95.05) Debit Note raised by Respondent (2435.27) Net Balance 534,696.20 3.3 The petitioner raised the invoices dated 31.08.2008 to 19.10.2007 and invoices dated 18.03.2008 to 29.04.2008 (mentioned at serial no. 1 to 10 and 18 to 20 in the above table) for the goods supplied by the petitioner to the respondent company. The pet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; "With regards to your email send to Manuela kindly note that we cannot cancel this order. As discussed with Mr. Benara and Mr. Kashyap in November all components have already been bought. As this is a special production run for Benara Retail we cannot use the component for any other customer. Due to this it was agreed that we postpone the December shipments by 1-2 months. Maybe we will be able to convince vendor to postpone until March, but then we will be forced to ship. Reg. The sales situation I am still waiting on your input reg. Marketing activities. Moreover, I plan to visit Benara in Feb together with your Marketing people to develop a sales/marketing strategy in a mutual discussion. Please check with Mr. Benera when he will be available and let me know soonest to arrange visa and flights." 6. It is submitted by the petitioner that as the respondent company failed to clear the outstanding amount the respondent was put to notice by an e-mail dated 13.08.2008 that the respondent would be liable to pay interest at the rate of 8.5% per annum on the outstanding amount. It is contended that since the respondent failed to comply with the terms of the agreement, the petit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e plea of the respondent that there is a bonafide dispute is baseless and an afterthought. The said allegation has been made only in order to avoid the payment of the outstanding dues of the petitioner. Therefore, the present petition needs to be admitted. 9. It is contended on behalf of the respondent that the present petition is not maintainable as the amount claimed by the petitioner in the present petition is disputed and there is a bona fide dispute. It is contended that the respondent has a valid counter claim against the petitioner. It is submitted by the respondent that the entire case of the petitioner is premised on the assumption that the e-mail dated 10.11.2008 indicates an admission of debt. it is contended that this is erroneous since it overlooks other communications, which indicate that the petitioner's claim is disputed. It is submitted that the respondent had on several occasions raised the issue of quality of the goods, even prior to the said e-mail dated 10.11.2008. The counsel for the respondent has drawn my attention to the e-mails dated 18.08.2007, 30.04.2008 and 18.03.2009 sent by the petitioner to the respondent. It is submitted by the respondent tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5.2009. The petitioner agreed to take back the goods in value of USD 447,976.54 from the respondent only on payment of the due amount of USD 113,109.54 to the petitioner. The respondent, by an email dated 16.05.2009, requested the petitioner to resolve the controversy and the issue of the banned products. 14. It is submitted that the respondent served a demand notice dated 31.07.2009 to the petitioner claiming an amount of USD 273252.46, inter alia, on account of custom and other charges and cost of warehousing for storing the goods after termination of the agreement. 15. I have heard the learned counsel for the parties at length. The law on this subject is now well settled. A winding up petition is not a legitimate means of seeking enforcement of a debt which is otherwise disputed by a company. A winding up petition can also not be used to exert pressure on the company to settle the claims which are not accepted by the company. It is obvious that if a debt is disputed, a refusal to pay such a debt cannot possibly lead to an inference that the company is unable to pay its debts. Having stated above, it is also equally well settled that a sham and spurious defense would not be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oods were defective or sub-standard and not in accordance with the order placed by the respondent. As the respondent was in the business of dealing in the subject goods, it cannot be accepted that the respondent was not fully aware of the quality of the goods that it had received. However, the respondent was not confident as to how the goods would be received in the market and, therefore, requested the petitioner to withhold further orders till the respondent could gauge the market response to the products supplied. This is clearly evident from the e-mail dated 01.10.2007 sent by the respondent, the relevant extract of which reads as under: "Please do not cancel the order. You can manufacture the same but please hold the material (if possible) at your end and we shall inform you latest by 15th November regarding shipment dates. This is with a view that we have to see the response of all these products first and then decide what we can sell and what we cannot." 19. Subsequently, by an e-mail dated 10.01.2008, the respondent informed the petitioner that they were not in a position to accept the goods....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt against its will. This is clearly not a defense which is sincere or bonafide. The fact that the respondent had requested for deliveries to be deferred was only for the reason that the respondent wanted to test the products in the market. The fact that the respondent was not successful in reselling the goods was attributed by the respondent to high prices and local competition. These defenses are certainly not available for a purchaser to avoid payments of the goods purchased by him. The petitioner is certainly not responsible for the inability of the respondent to resell the goods or any difficulty faced by the respondent in its business. 21. The petitioner continued to demand payment for the goods and also put the respondent to notice, by email dated 13.08.2008, that it would charge interest at the rate of 8.5% p.a. on the outstanding amount. 22. The exchange of e-mails that ensued thereafter, clearly indicates that efforts were being made by the petitioner and the respondent to amicably arrive at a resolution whereby the dues of the petitioner could be discharged. It is clearly evident from the correspondence exchanged between the parties that the respondent could only r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he fact that the respondent proposed to continue to sell the goods also clearly indicate that there was no impediment, legal or otherwise, in selling the subject goods. The only issue that the respondent had voiced was with regard to the prices of the subject goods. 24. The defense now raised by the respondent has to be viewed in the backdrop of the aforesaid facts. 25. The respondent has alleged that the goods in question are hazardous and are of sub-standard quality. The respondent has also referred to the e-mail dated 10.11.2008 sent by the petitioner and has relied on the following sentence of the said mail: "Marko has requested Mr Benara several times to tell him the "alleged" problem items and to quote the quantity". It is contended that the above quoted sentence indicates that the respondent had already communicated to the petitioner that the goods were defective and sub-standard. The respondent has also relied on the e-mail dated 18.08.2007 which included the following sentence: "Thanks for your explanation for the Mattel case. We will check the again for the goods contain lead or not. It seems do children business getting more difficult more and more. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upreme Court in IBA Health (I) (P.) Ltd. (supra) is also misplaced. The said decision does not support the contentions canvassed by the respondent. In that case, the Court had concluded that there was a substantial dispute with regard to compliance with the terms and conditions of a settlement and in cases of substantial and genuine disputes a winding up petition would not lie. The relevant extract in the said decision is quoted below: - "17. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to depri....